EDITORIAL: Just when the certainty of the election was supposed to bolster confidence about continued engagement with crucial IFIs (nternational financial institutions), which in turn is necessary to keep the country solvent and the threat of default at a comfortable distance, the World Bank has warned that strong and organised vested interests may trigger a number of potential reversals on critical policy reforms after the poll. That would risk reversing reforms promised to multilateral lenders, posing “high macroeconomic risks” to the country.

The concern is not entirely unfounded and shows a deep understanding of the country’s political/democratic culture. For, you can be sure that leading politicians/political parties made a host of promises to interest groups and trade bodies that have been stung by subsidy-cutting, tax-increasing reforms that are now essential to keep the money flowing into the treasury to beef up national reserves.

The PDM (Pakistan Democratic Movement) coalition government that came after the no-confidence ouster of the PTI (Pakistan Tehreek-e-Insaf) administration paid a very heavy political price for following the reform agenda, especially when the EFF (Extended Fund Facility) was cancelled half-way and the SBA (Stand-by Agreement) had to be urgently negotiated to keep the country from defaulting.

The World Bank, in its assessment of the recently approved $350 million loan under the second Resilient Institutions for Sustainable Economy (Rise-II), now worries that the new setup would look to build political capital and keep promises to voters, especially those “advocating to reverse critical reforms, particularly trade tariff reforms, increases to property taxation and energy sector reforms”.

It went on to add, quite rightly, that “political and governance risks are high because of the upcoming elections, as associated political pressures may erode fiscal restraint or the commitment to continued implementation of challenging reforms”.

Even more crucial is the bit about macroeconomic risks, because “reserve cover at the end of the SBA (is) projected to be below 1.5 months of imports”, which means additional external support will definitely be needed after it.

Yet while everybody knows about the need for more financial support – even the caretaker finance minister admitted to it recently – whether or not the new political dispensation will be able to bite the bullet and upset its support groups in order to secure it remains to be seen.

But it’s not as if anybody has any choice in the matter. Therefore, whichever party comes to power will, in a way, face a lose-lose proposition. Keeping its vote bank happy will mean immediately cutting foreign funding, which will mean it will forever be remembered as the party that wrecked the economy. On the other hand, bowing to lenders’ conditions will definitely alienate the people and groups whose support is necessary to win the election.

There’s more. IFIs have already made it clear enough that future support will require “expanding the tax base by increased taxation of assets, property, and sectors traditionally outside the tax net, particularly agriculture, small retail and real estate, further reduction in tax exemptions and effective implementation of the treasury single account to reduce government borrowing needs”.

All this makes for a very difficult situation. There’s no doubt that the country is at the most critical juncture in its history. It faces unprecedented political divisions, another security emergency, and a very real threat of default. And nothing will be possible if the economy collapses.

Therefore, it is only natural that very tough decisions need to be taken. Let there be no mistake; whoever wins the election will get nothing more than a crown of thorns.

Copyright Business Recorder, 2023

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KU Dec 31, 2023 10:39am
The WB is saying many things between the lines and apprising us with our dangerous aspiration with undemocratic ways and control in the hands of tried and convicted. The last 24 hours saw technical knockouts of many PTI aspirants for elections, and was a mere hint of what is to come. But even then, which part of our senses believe that the rigged elections and leaders with a long rap sheets are going to steer the country out of economic malaise? The political and economic progress is designed to benefit the mafia of all sorts and shades, and people are an inconvenient truth to be used with collateral damage, when ever time necessitates.
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